2025 (1) TMI 78 - AT - Service Tax

Quantification of education cess and secondary higher education cess - to be calculated on the gross service tax amount or the net service tax amount after deducting the R D cess exemption? - computation on best judgment basis - invocation of extended period of limitation - HELD THAT - It is found that in the Appellant s own case for the subsequent period pertaining to financial year 2014-15 and 2015-16 involving the identical issue as involved in the present case, the Commissioner vide Order-in-Original No. 08/ST/COMMR/VMJ/RTK/2017-18 dated 29.12.2017 has allowed the benefit in favour of the Appellant and the department has accepted the said order and has not filed any appeal against the same. Since the department has accepted the order of the Commissioner dated 29.12.2017, which has now attained finality and the present proceedings have also arisen on the basis of same audit, therefore, it is held that the issue is squarely covered in favour of the Appellant. Further, the Appellant had rightly paid the education cess and secondary higher education cess on the amount of net service tax i.e. service tax after deducting the amount of R D cess i.e. exempted amount. Conclusion - The appellant had rightly paid the education cess and secondary higher education cess on the amount of net service tax i.e. service tax after deducting the amount of R D cess i.e. exempted amount. The impugned order is not sustainable in law - Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in the judgment are:

Whether the education cess and secondary & higher education cess should be calculated on the gross service tax amount or the net service tax amount after deducting the R&D cess exemption.
Whether the demand for education cess and secondary & higher education cess was correctly computed under the best judgment assessment provisions.
Whether the extended period of limitation was rightly invoked by the department for demanding the cesses.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Calculation of Education Cess and Secondary & Higher Education Cess

Relevant legal framework and precedents: The appellant relied on the exemption provided under Notification No. 18/2002-ST and Notification No. 17/2004-ST, which allowed deduction of R&D cess from service tax. The appellant also cited previous decisions in their favor and Circular No. 80/10/2004-ST, which clarified that education cess should be calculated on net tax paid.
Court's interpretation and reasoning: The court noted that the department had accepted the appellant's position in subsequent periods, where similar issues were decided in favor of the appellant, and no appeals were filed by the department against those decisions.
Key evidence and findings: The court found that the appellant had consistently deducted R&D cess before calculating the education cess and secondary & higher education cess, aligning with the department's acceptance in later periods.
Application of law to facts: The court applied the precedent and the department's acceptance of similar cases to conclude that the appellant correctly calculated the cesses on net service tax.
Treatment of competing arguments: The court dismissed the department's argument that the cesses should be calculated on gross service tax, considering the department's previous acceptance of the appellant's method.
Conclusions: The court concluded that the appellant was correct in calculating the cesses on net service tax after R&D cess deduction.

Issue 2: Best Judgment Assessment

Relevant legal framework and precedents: Section 72 of the Finance Act, 1994, pertains to best judgment assessment when returns are not furnished.
Court's interpretation and reasoning: The court found that the appellant had been regularly filing returns, making the application of best judgment assessment inappropriate.
Key evidence and findings: The appellant demonstrated regular filing of returns, negating the need for best judgment assessment.
Application of law to facts: The court applied Section 72 and concluded that the assessment was incorrectly conducted on a best judgment basis.
Treatment of competing arguments: The court dismissed the department's reliance on best judgment assessment due to the appellant's compliance with return filing.
Conclusions: The court held that the demand was incorrectly computed using best judgment assessment.

Issue 3: Extended Period of Limitation

Relevant legal framework and precedents: The extended period of limitation under Section 73(1) of the Finance Act, 1994, is applicable in cases of suppression or misstatement.
Court's interpretation and reasoning: The court found no evidence of suppression or intent to evade tax, given the appellant's bona fide belief and consistent practice.
Key evidence and findings: The appellant's reliance on legal provisions and consistent practice indicated no intent to evade tax.
Application of law to facts: The court applied the legal standard for invoking the extended period and found it inapplicable.
Treatment of competing arguments: The court rejected the department's claim of suppression, considering the appellant's bona fide belief and consistent practice.
Conclusions: The court concluded that the extended period of limitation was not applicable.

3. SIGNIFICANT HOLDINGS

The court held that "the appellant had rightly paid the education cess and secondary & higher education cess on the amount of net service tax i.e. service tax after deducting the amount of R&D cess i.e. exempted amount."
The court established the principle that consistent acceptance of a practice by the department in subsequent periods can preclude the department from taking a contrary stance in earlier periods.
The court determined that the best judgment assessment was incorrectly applied, as the appellant had been regularly filing returns.
The court concluded that the extended period of limitation was not applicable due to the absence of suppression or intent to evade tax.
The final determination was that the impugned order was not sustainable in law, and the appeal was allowed with consequential relief.

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